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Inflation types and causes

inflation types..and causes...and remedies...

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Inflation types and causes

  1. 1. Muhammad Aamir Kiyani
  2. 2. Inflation? Continuous rise in prices
  3. 3. Types of Inflation according to RATE
  4. 4. “When the rise in prices is very low like that of a snail or creeper, is called Creeping Inflation”
  5. 5. Prices rise moderately
  6. 6. Prices rise rapidly Also called Runway or Galloping inflation Immeasurable and uncontrollable
  7. 7. Prices rise very fast at double or triple digit rate. Also called Runway or Galloping Inflation
  8. 8. Quantity Theory Demand Pull Theory Cost Push theory
  9. 9. Quantity theory: The quantity theory of inflation states that too much money in the economy leads to the inflation. %change in the money supply level same % change in the overall price Y= total output produced M=amount of money available in an economy V=the velocity of money P=the overall price level in an economy
  10. 10. Demand Pull Inflation: When the aggregate demand increases more than the supply. Amount House hold (increase) Demand (increase) Prices (increase)
  11. 11. Demand Pull causes • • • • Increase in the money supply Increase in population Gov. expenditure Credit creation
  12. 12. Cost Push Inflation: When cost of production increases the price level automatically increases.
  13. 13. Cost push causes: Increase in indirect taxes
  14. 14. Increase in prices of raw material
  15. 15. Shortage of supply FOP
  16. 16. Devaluation of money
  17. 17. • • Monetary Measures Fiscal Measures
  18. 18. Monetary Measures • • • • • Bank rate policy (interest rate increase) Contraction money supply Open market operation Variable reserve ratio Credit rationing
  19. 19. Fiscal measures • • • • Higher direct taxes (causing a fall in disposable income) Lower Government spending A reduction in the amount the government sector borrows each year (PSNCR) Direct wage controls - incomes policies
  20. 20. Any Question?